Credit report nightmare...help

[Nicholas Reyes]

Hello everyone, So I went to a bank to have a pre-approval done and I was denied for serious delinquencies. I had 2 collections on my report which were paid 1 1/2 yrs ago. I also purchased my primary residence about 6 months ago with no issues. my FICO was at 690 during that time. When they ran it this week it dropped to 606. The only changes to my report was a personal loan got paid off. I've never had missed payments on any accounts, my revolving credit accounts are less than 30% balance. I called Equifax to see if there was an error on there end but I was told nothing is wrong. I just don't understand how my credit can drop 80 points by just paying of a personal loan. I thought purchasing my primary residence would increase my score but it had zero affect on it. I am looking for any advice on getting this cleared up. I am ready to start buying property but this is a huge set back that I need to get cleared up. The loan officer also stated he has never seen a score like this in the 40 years he's been doing this.

[Kyle J.]

DTI ratio has no bearing on your credit score. The credit bureaus don't even know what your income is, so there's no way to factor that into your score.

The two collections accounts are obviously going to bring down your score some, but those will come off at some point (albeit not for a while). 

For now, I'd suggest trying to lower your credit utilization ratio.  This has a "high" impact on your credit score, and while 30% isn't necessarily bad - it isn't that great either.  Let me give you some anecdotal evidence of how much it can affect your score.  My credit utilization ratio usually is around 5% and my credit score always hovers around 827.  However, a couple months ago, I charged a very expensive vacation on my credit card because I wanted the rewards points.  I paid the entire balance off as soon as I got the statement; however, as soon as the higher balance hit my credit report and my credit utilization ratio went up to closer to 20%, my score immediately dropped over 30 points to 795.  So it can have a very big impact on your score.  The good news is, as soon as I paid the balance off and that hit my credit report, I went right back up to 827. 

I'd suggest following this guideline and trying to get your credit utilization ratio as low as possible:

One way to improve your ratio is obviously to pay down your balances.  However, an equally effective (and often easier) way to do it is to call your credit card companies and request a higher credit limit.  Just an idea.